IRS Widens Net in Search For Offshore Tax Cheats

The IRS has asked a Miami federal judge to approve a request for MasterCard’s 1999, 2000 and 2001 records in an effort to catch tax cheats.

By David A. Semanchik, Esq.

Tax cheats using offshore bank accounts in an effort to dodge Uncle Sam have an even greater reason to fear.

The Internal Revenue Service and the Justice Department have asked a Miami federal judge to approve summonses for MasterCard’s records for 1999, 2000 and 2001.  The records include the files for cards issued by banks in 30 countries.

This request comes only months after the IRS requested the 1998 and 1999 records for just a few countries.

IRS officials estimate that the government loses approximately $70 billion annually due to offshore tax shelters.  To pay for their U.S. expenses, tax cheats use credit cards, such as MasterCard, tied to offshore banks. The bills then go to the offshore bank and effectively eliminate the incriminating paper trail.

Obtaining the records from MasterCard, of course, would tell the government exactly who is using offshore bank accounts to hide money from the United States.

“The agency is committed to following up on this issue and pursuing individuals dodging their tax responsibilities,” IRS Commissioner Charles Rossotti told the Associated Press. “The IRS effort should send a clear signal to tax evaders.”

This recent action is one of many taken by the IRS in an effort to remind taxpayers that tax cheats will not go unpunished.  Additionally, in a post-Enron America where financial scandals have become the topic du jour, the Bush administration has pressured the IRS to start cracking down.

Offshore bank accounts have long been the method of choice for high-stakes tax evaders because the IRS has historically ignored the method.  It was also the most difficult tax scam to prove.

That is, until the U.S. government got its hands on credit card records – the veritable smoking guns.

What’s more, those who evaded the IRS by using offshore bank accounts from 1998 to 2001 should take these new developments seriously.  The penalty for tax evasion is by no means laughable.

The maximum per-charge penalty for those found guilty of federal tax evasion is five years in prison and fines of up to $250,000.  That’s on top of back taxes and interest a judge may order be paid.

The IRS estimates that 2 million Americans have offshore bank accounts, yet in 1999 only 117,000 taxpayers reported having such accounts.

While it is not illegal to have an offshore bank account, the IRS believes most are used to hide income.

For those who will be caught in the government’s widening net, now is the time to come forward, when the IRS is willing to work with taxpayers to find a way to recoup its tax losses.

As the old saying goes, you can run, but you can’t hide from the IRS.  And you can’t run forever.

David A. Semanchik is a member of the American Society of IRS Problem Solving and a New Jersey Attorney.  You can contact him at 732 240 4055 to obtain a free subscription to his newsletter titled The IRS Times & Inquirer.